IRDAI proposes doubled investment limits for insurers in REITs, InvITs; eyes gold ETFs

The IRDAI has also suggested that up to 5% of a segregated ULIP fund's assets could be allocated to gold ETFs, falling within the existing 15% overall mutual fund limit.

India's insurance watchdog has put forward new regulations that would permit insurers to significantly increase their investments in pooled property and infrastructure assets and also allow them to invest in gold exchange-traded funds (ETFs), an Economic Times report said on Wednesday.

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), which gather funds for property ownership and infrastructure projects, have become key long-term investment options. Concurrently, gold has seen substantial growth, appreciating by nearly 90% in dollar terms over the last five years.

The proposed guidelines from the Insurance Regulatory and Development Authority of India (IRDAI) indicate that insurers would be able to purchase gold ETFs specifically for Unit-Linked Insurance Plans (ULIPs).

One of the significant changes is the proposed doubling of the investment cap for both InvITs and REITs. This cap would increase to 6 percent from current 3 percent. This move aims to direct more long-term insurance capital towards infrastructure and real estate development.

As of March 31, 2024, life insurance companies managed a total of Rs 61.57 lakh crore in funds. The majority of these funds, Rs 53.96 lakh crore (87.64%), were held in traditional policies, with Rs 7.61 lakh crore (12.36%) in ULIPs. Insurers' investments included Rs 24.37 lakh crore in central government securities, Rs 12.95 lakh crore in state government bonds, Rs 5 lakh crore in housing and infrastructure, and Rs 10.65 lakh crore in other approved assets.

Additionally, IRDAI plans to align with capital market norms by reducing the public float requirement for REITs and InvITs at the time of investment to 25% from present from 30%.

With Crisil projecting the assets under management for InvITs and REITs to expand by 15-20% to Rs 7.5-8 lakh crore by FY25, IRDAI's proposals are expected to bolster capital flow into these sectors, supporting the national push for infrastructure financing.

The IRDAI has also suggested that up to 5% of a segregated ULIP fund's assets could be allocated to gold ETFs, falling within the existing 15% overall mutual fund limit. This proposition, prompted by requests from two major life insurers, comes as gold has significantly outperformed other asset classes, yielding over 30% returns in the past year compared to 5-8% for equities, fixed deposits, and liquid funds.